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Yield curves, recession signals, employment, inflation — what regime are we in?
Every single-stock thesis sits inside a regime. A great business at the top of an expansion is a different bet from the same business at the start of a recession. The Macro tab is where you check the weather before you pick the stock.
Four numbers do most of the work in describing a macro regime: the , the , the , and the Federal Reserve's policy rate. Each one tells you something different, and the combination tells you what regime you're standing in.
In a normal economy, longer-term bonds pay higher rates than shorter-term bonds because lenders want compensation for tying money up longer. When that flips — short rates above long rates — the curve is INVERTED. Inversion has preceded every U.S. recession of the last 50 years, typically by 12-24 months. It's the single most-watched recession signal.
Unemployment under 4% historically signals a tight labor market and end-of-cycle conditions. Above 5% and rising signals contraction. Inflation above 4% pressures the Fed to tighten policy (raise rates), which historically slows growth. Below 2% with falling growth raises deflation worries. Together, these tell you whether the Fed is likely to be your friend or your enemy over the next 12 months.
The federal funds rate sets the cost of capital across the economy. Rising rates pressure equity multiples (P/E ratios contract as bonds become more competitive). Falling rates do the opposite. The meets eight times a year and publishes a 'dot plot' showing where members expect rates to go.
The 2-year / 10-year Treasury spread (FRED series T10Y2Y) went negative in early 2006 and stayed mostly inverted through mid-2007. The recession officially began December 2007, with Lehman Brothers collapsing September 2008. The curve was screaming 'recession ahead' nearly two years before equity markets cracked. Source: FRED series T10Y2Y, 2006-2009.
Open the Macro tab. The default view shows the 2s10s spread, unemployment, CPI year-over-year, and the federal funds rate as four time series. The first thing to look for: is the yield curve currently inverted? If yes, when did it invert and how deep? Second: is unemployment near cycle lows (under 4%) or rising? Third: where is CPI relative to the Fed's 2% target? Fourth: where is the Fed's policy rate relative to the FOMC dot plot. Read these four together — they describe the regime your thesis is operating inside.
Every macro indicator has been wrong at least once. The yield curve was inverted for most of 2022-2024 without an accompanying recession (the 'longest false signal' on record, partly because the post-COVID labor market never broke). Inflation indicators lagged the actual price surge in 2021. Unemployment is a textbook lagging indicator — it doesn't peak until well into the recession. Read four indicators TOGETHER, not one in isolation, and weight them by how the labor market and credit spreads are confirming or contradicting the message.
We can't predict, but we can prepare. Knowing where we stand in the cycle is the most useful thing in investing. It doesn't tell you what's going to happen tomorrow, but it tells you where the odds are tilted — and that's where edge lives.
Four indicators describe a macro regime: yield curve, unemployment, inflation, Fed policy rate. An inverted yield curve has preceded every U.S. recession of the last 50 years, typically by 12-24 months. Unemployment is a lagging indicator — it confirms a recession after it has started, not before. Inflation above 4% pressures the Fed to raise rates, which compresses equity multiples. No single indicator is infallible — read them together and weight by confirmation across the labor market and credit spreads. Macro doesn't tell you what stock to buy; it tells you which side of the cycle your thesis is fighting.